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How Does Checking Your Credit Affect Your Score?

Uh-oh. Your car got rear-ended by some college kid who was driving and Snapgramming (or Tindrbooking or something). You’ve taken the car in for repairs but the kid didn’t have insurance and the bill is pretty steep. And it’s not like you can go without your car—how else are you going to get your kids to school and yourself to work?!

You’re thinking about taking out a loan to pay for the repairs, but you’re not sure about your credit score. In fact, you’re pretty sure you might have to take out a bad credit loan. It would make sense to check your credit score, but … that will hurt your credit, right?

What’s the deal with that anyway? What’s the point of having a credit score if every time you check it your score goes down?!

Whoa. That’s a lot of questions. Let’s get this all sorted out, shall we?

Hard Checks

To start off, there isn’t only one kind of credit check. There are two: “hard” credit checks and “soft” credit checks. (You’ll also hear them referred to as credit “pulls.”)

Hard credit checks return more information than soft checks. This is because a hard check (or a hard pull) actually involves pulling up a copy of your full credit report. Hard checks are the ones that will affect your credit score. Don’t worry though, the effect is usually minimal.

According to Nerdwallet (@NerdWallet) personal finance expert Liz Weston (@lizweston), “Most applications for credit trigger hard pulls, which means they ding your scores a bit—typically 5 points or less, and even that minimal damage starts to fade pretty quickly and is gone within a year.”

How long before the effect of that hard pull goes away? Weston says that “Inquiries can stay on your credit reports for two years but it’s a factor in the FICO formula, which is the leading one, for only one year.”

“Hard inquiries are defined as credit checks performed by a financial institution, such as a mortgage lender or credit card issuer, to review your report when making a lending decision,” says Natasha Rachel Smith, personal finance expert at TopCashback (@TopCashBackUSA).

So why is it that hard credit pulls negatively affect your credit?

“Hard inquiries are used for major financial decisions,” says Smith. “Points are taken off your score through hard inquiries since too many in a short space of time can be interpreted as an indicator that you need financial help.”

Soft Checks

Soft credit checks, on the other hand, don’t usually return as much information as a hard check. They provide a broad overview of your credit history. This category of credit check includes checks made by non-financial institutions as well as those instances where you decide to check your own credit score or credit report.

“It is a common misconception that checking your personal credit score will hurt it,” says Smith. “When a person or non-financial company, such as an employer or landlord, checks your credit score it is considered a ‘soft inquiry.’ Soft inquiries allow you to monitor your score as often as you’d like and it will not be negatively impacted.”

Weston also cautions that “If you ask your friend at the car dealership to pull your reports or scores, it likely will be coded as a hard pull.” On the other hand, “If you order your reports or scores from the bureaus or a site like NerdWallet, it will be a soft pull.”

“Some online lenders also promise soft pulls,” she continues, “so that you can see if you’re approved without damaging your score.”

“That’s helpful, because it’s smart to shop around when it comes to loans. One inquiry might not be much to worry about, but a bunch of inquiries can take their toll.”

How does credit check “bundling” work?

You might have heard of this phase, “bundling”, in regard to credit checks. What does it mean?

Don’t worry. It’s pretty simple.

When you’re shopping around for a loan, each lender is doing a separate hard check on your credit. To make sure that all those different hard checks don’t add up—and discourage people from shopping around for the best loan—all these inquiries get bundled together into a single inquiry on your credit report.

“You can shop for auto loans and mortgages without fear, as long as you do it within a relatively short period of time such as two weeks, although some credit scoring formulas give you longer,” says Weston.

“With FICO scores, all auto-related inquiries made within that window are aggregated together and counted as one. The same goes for mortgage-related inquiries. VantageScore, a FICO rival, offers similar treatment for hard inquiries made by utilities as well as those made for mortgage and auto loans.”

Understand, though, that these different types of inquiries aren’t all added together,” she warns. “In other words, if you apply for one credit card, two auto loans and five mortgages within a two-week period, the scores will count three hard inquiries.”

Checking your credit is very important.

Now that you know you can check your credit score and credit report without hurting your credit, you should go ahead and do it!

“It’s smart to check your credit reports at least annually, which you can do for free at the federally-mandated site AnnualCreditReports.com,” says Weston. “Make sure to enter the URL, www.annualcreditreports.com, directly into your browser, since clicking on links in search engines can send you to look- or sound-alike sites that aren’t the real deal.”

But she makes clear that “Your reports from the site don’t come with a free credit score. To get free scores, you’ll need to look elsewhere.”

Luckily, there are many ways for you to do that.

“You can access your own credit score free of charge,” says Smith. “Certain credit cards companies, such as Capital One and American Express, will provide their customers with their credit score at no charge, or you can use CreditKarma to access it.”

“CreditKarma is a great site to use, as it offers a free, ongoing ability to see your credit score with credit reports from TransUnion and Equifax, two of the major credit-reporting agencies.”

Weston says that “Many sites, including NerdWallet, offer free VantageScores from one of the three bureaus. (Ours is from TransUnion.) You can get free FICO scores from Discover and from Experian’sFreeCreditScore.com. You may also get free scores from your bank or credit card issuers.”

“Here’s what you should keep in mind about free scores: they probably won’t be the exact ones lenders would use,” says Weston. “The FICO 8 is the most commonly used score and it’s the one offered by Discover and Experian. Some lenders may use older versions of the FICO, or versions modified specific industries. There are various generations of FICOs for credit cards, car loans and mortgages, for example. If you want to see a much wider range of your FICO scores, you would need to pay about $60 for FICOs from all three bureaus at MyFico.com.”

“If you just want to monitor your credit over time, though, free FICOs or VantageScores will help you do that,” she says.”

Do you have any other questions about credit scores, credit reports, or hard and soft checks? Let us know! We’d love to give you the answer. You can find us on Twitter at @OppLoans.

Contributors

Natasha Rachel Smith, Personal Finance Expert at TopCashback.com, is based in Montclair, NJ. Natasha’s background is in retail, banking, personal finance and consumer empowerment; ranging from sales to journalism, marketing, public relations and spokesperson work during a 17-year career period. She’s originally from London, UK, but moved to Montclair, New Jersey, USA, several years ago to launch and run the American arm of the British-owned TopCashback brand; a global consumer empowerment and money-saving portal company.

Liz Weston, is a NerdWallet Columnist and Certified Financial Planner® whose goal is to help you get smarter about money so you can get on with your life. She’s the author of five books including the best-selling “Your Credit Score” and has appeared on a bunch of TV shows, including CNBC’s Power Lunch, Mornings with Maria on Fox Business, NBC Nightly News, the Today Show—and Dr. Phil, where she advised a would-be ghost hunter to get real about his finances. She lives with her husband, daughter and co-dependent golden retriever in Los Angeles.

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